The sovereign-debt crisis engulfing
Greece risks spreading to Britain and the U.S. unless decisive
steps are taken to rein in their budget deficits, said former
Bank of England policy maker DeAnne Julius.

“We’re living in a world economy where there are massive
pools of liquidity and the tides shift and they usually shift to
target the weakest link,” Julius said in a Bloomberg Television
interview in London today. “At the moment that’s been Greece.
They’re now looking around to see where else in Europe and the
euro area it might be, and indeed I think the risk that this
economy and the U.S. faces is that unless we get control of our
debt burden we could be in line at some point as well.”

Bill Gross, manager of the world’s biggest bond fund, has
grouped the U.S. and the U.K. with Greece, Spain, Ireland and
Italy in a “ring of fire,” comprised of countries with the
potential for public debt to exceed 90 percent of their gross
domestic product within a few years.

Fitch Ratings said last week Britain’s new coalition
government needs to accelerate budget-deficit cuts to protect
the nation’s top credit rating. In his emergency budget on June
22, Chancellor of the Exchequer George Osborne will outline the
scale of the cuts required to eliminate a deficit of 11.1
percent of GDP, the highest since World War II.

“We’ve still got a lot of debt in the economy,” Julius
said. “It’s not so much on households, and it’s not so much on
banks anymore. It’s been transferred to governments. That debt
has to be assumed by someone and if it is the case that the
markets think that they need to be paid more to take on that
debt, then we will indeed see longer-term interest rates start
to rise.”

‘Wait and See’

The Bank of England kept its bond-stimulus program in place
and left its benchmark interest rate at a record low last week
to aid the economy as Prime Minister David Cameron’s government
prepares the biggest budget cuts since at least the 1970s. The
risk that Europe’s debt crisis may hurt Britain’s economy means
monetary policy makers should “wait and see” even as inflation
exceeds the upper limit of the inflation target, Julius said.

“In a way, today’s decision is easier, because almost no
one expects a significant tightening of monetary policy in the
current circumstances,” she said. “The fact that it is now on
hold is the right situation, and if it can be worked off
gradually that’s probably the best solution for the economy.”